final 100 mks project new corporate governance project
TRANSCRIPT
A PROJECT REPORT ON“Corporate Governance in Private Sector Banks”
SUBMITTED TO
UNIVERSITY OF MUMBAIIN THE PARTIAL FULLFILMENT OF B.B.I. DEGREE
BYUzma Mansuri
T.Y.BCOM (B&I) (A-10)SEAT NO: 939
STUDYING AT
RIZVI EDUCATION SOCIETY’SRIZVI COLLEGE OF ARTS, SCIENCE & COMMERCE
BANDRA (W), MUMBAI-50
ACADEMIC YEAR (2009-2010)
DECLARATION
I, Miss Uzma Mansuri, a student of T.Y.B.Com (Banking & Insurance)-SEM: 5
of Rizvi College of Arts, Science and Commerce hereby declare that I have
completed this project titled “Corporate Governance in Private Sector Banks”
for the academic year 2009-2010. It is an original and true work to the best of my
knowledge
_____________________ Signature of the Student
[Uzma Mansuri]
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CERTIFICATE
I, Prof. Furquan shaikh, hereby verify that Miss Uzma Mansuri have
completed this project titled “Corporate Governance in Private Sector Banks”
for the academic year 2009-2010. It is an original and true work to the best of my
knowledge.
___________________ _____________________Signature of the principal signature of the project guide
[Dr S.G.A.Zaidi] [Furquan shaikh]
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ACKNOWLEDGEMENT
The work with this dissertation has been extensive and trying, but in the first place
exciting, instructive, and fun. Without help, support, and encouragement from
several persons, I would never have been able to finish this work.
First of all, I would like to thank my project guide Mr. Furquan shaikh, who not
only served as my supervisor but also encouraged and challenged me throughout
my academic program. He patiently guided me through the dissertation process,
never accepting less than my best efforts.
I also extend my sincere thanks to our Principal Dr S.G.A.Zaidi and vice Principal
Beena Pant for supporting me and also the other students in an indirect manner.
And lastly, I would like to thank almighty and my Parents for encouraging and
also for providing the funds for the successful completion of my project and
insights on the workings of academic research in general.
Executive SummaryPage | 3
Banks earlier performed two main activities of accepting deposits and lending. But
this scenario of accepting deposits and lending has completely changed. Today
banks carry on ‘n’ number of activities. As the banking business is widening, the
responsibility of banks and investors expectations from banks has also
considerably increased.
This project talks of Corporate governance not only being a pre-requisite for facing
intense competition for substantial growth but it also includes the parameters of
fairness, accountability, disclosures and transparency and to maximize value for
the stakeholders. Corporate governance extends far beyond the boundary of
corporate laws. Today the focus on governance is on the quality of governance.
Even capital and investments from the international investors are available to
corporate by demonstrating good governance practices. The project not only gives
us insight about corporate governance but it also covers the issues to be taken care
of banks.
The focus of corporate governance is more in the financial sector in general and
banking particularly. Governance issues are of paramount importance, as banks are
the critical elements of an economy playing a major role channelizing the public
savings into productive activities. Banking is considered as a subset of corporate
governance as activities of banks are stringently regulated by the regulatory
authority.
SR.NO TABLE OF CONTENT PAGE.NO
1INTRODUCTORY FRAMEWORK TO CORPORATE
6
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GOVERNANCE 2 CORPORATE GOVERNANCE IN INDIA – A BACKGROUND 8
3 GUIDELINES AND CODES OF CORPORATE GOVERNANCE 12
4 CONCEPT OF CORPORATE GOVERNANCE 16
5 DEFINITION OF CORPORATE GOVERNANCE 19
6 ORIGIN OF CORPORATE GOVERNANCE 20
7 ORIGIN IN INDIA OF CORPORATE GOVERNANCE 22
8 CORPORATE GOVERNANCE IN LISTED COMPANIES CLAUSE 49 OF THE LISTING AGREEMENT
24
9 CORPORATE GOVERNANCE IN BANKS 50
10 OBJECTIVES OF CORPORATE GOVERNANCE IN BANKS 52
11 CORPORATE GOVERNANCE IN PRIVATE SECTOR BANKS 53
12 CORPORATE GOVERNANCE OF HDFC BANK 59
13 CONCLUSIONS 68
14 BIBLIOGRAPHY 69
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1. Introductory Framework to Corporate Governance
Corporate governance basically denotes rule of law, transparency, accountability and protection
of public interest in the management of a company’s affairs in the prevailing global, competitive
and digital environment. It calls for an enlightened investing community and strict regulatory
regimes to protect the rights of the investors and companies to improve productivity and
profitability without recourse to any means which will offend the moral, ethical and regulatory
framework. The framework for corporate governance is not only an important component
affecting the long-term prosperity of companies, but it is a leading species of large genus
namely, National Governance, Human Governance, Societal Governance, Economic Governance
and Political Governance. Government provides necessary conditions, framework and
environment to corporate to operate. There is, however, no universal recipe for good corporate
governance since business environment varies from country to country. Efforts to articulate
standards for corporate governance took roots in countries like the United States and the United
Kingdom and have subsequently spread to other countries. The Organization for Economic
Cooperation and Development (OECD) took early initiatives to address governance issues and
adopted the OECD Principles on Corporate Governance in May 1999. Equity markets in these
countries were not too strong but the investment in equities was on the ascendance. After 1990
the transition from central planning to market driven economies, particularly the privatization of
state-owned companies, and the need to provide governance rules for the emerging private
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sector, brought the issue of corporate governance to the centre stage. As a fall out of 1997
economic and financial crisis, Asian countries too became keenly interested in the issue of
corporate governance. Globalization of the marketplace has ushered in an era wherein the quality
of corporate governance has become a crucial determinant of survival of corporate. The
compatibility of corporate governance practices with global standards has also become an
important constituent of corporate success. The practice of good corporate governance has,
therefore, become a necessary pre-requisite for any corporation to manage effectively in the
globalised market.
Today the Indian economy has shifted from a controlled one to a market driven one. In this
process there have been several enfoldments in order to survive and flourish in the global
competitive market by the Indian corporate who need to assimilate these developments. They can
aspire to reach their goals with success if they pursue the right means. Good Governance is the
means to that end. The objectives before a business are to create wealth for the society, maintain
and preserve that wealth efficiently and to share the wealth with the stakeholders. Corporate
Governance is the method by which the aforesaid objectives are achieved. Liberalization and
Globalization has opened up vast opportunities for domestic players but is also fraught with
various challenges. Foreign Institutional Investors too demand greater professionalism in the
corporate activities. All these and many other related developments have brought in the issue of
Corporate Governance to center stage. Thus Corporate Governance has become imperative for
good corporate functioning and success.
Corporate Governance which until recently meant little to all but now it has become a
mainstream concern and a subject of discussion in corporate boardrooms, academic circles and
government and regulators around the globe.
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2. Corporate Governance in India – A BackgroundThe history of the development of Indian corporate laws has been marked by Interesting
contrasts. At independence, India inherited one of the world’s poorest economies but one which
had a factory sector accounting for a tenth of the national product; four functioning stock
markets (predating the Tokyo Stock Exchange) with clearly defined rules governing listing,
trading and settlements; a well-developed equity culture if only among the urban rich; and a
banking system replete with well-developed lending norms and recovery procedures.24 In terms
of corporate laws and financial system, therefore, India emerged far better endowed than most
other colonies. The 1956 Companies Act as well as other laws governing the functioning of
joint-stock companies and protecting the investors’ rights built on this foundation.
The beginning of corporate developments in India were marked by the managing agency system
that contributed to the birth of dispersed equity ownership but also gave rise to the practice of
management enjoying control rights disproportionately greater than their stock ownership. The
turn towards socialism in the decades after independence marked by the 1951 Industries
(Development and Regulation) Act as well as the 1956 Industrial Policy Resolution put in place
a regime and culture of licensing, protection and widespread red-tape that bred corruption and
stilted the growth of the corporate sector. The situation grew from bad to worse in the following
decades and corruption, nepotism and inefficiency became the hallmarks of the Indian corporate
sector.
In the absence of a developed stock market, the 3 all-India development
Finance institutions (DFIs) – the Industrial Finance Corporation of India, the Industrial
Development Bank of India and the Industrial Credit and Investment Corporation of India –
together with the state financial corporation’s became the main providers of long-term credit to
companies. Along with the government owned mutual fund, the Unit Trust of India, they also
held large blocks of shares in the companies they lent to and invariably had representations in
their boards. In this respect, the corporate governance system resembled the bank-based German
model where these institutions could have played a big role in keeping their clients on the right
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track. Unfortunately, they were themselves evaluated on the quantity rather than quality of their
lending and thus had little incentive for either proper credit appraisal or effective follow-up and
monitoring. Their nominee directors routinely served as rubber-stamps of the management of the
day. With their support, promoters of businesses in India could actually enjoy managerial control
with very little equity investment of their own. Borrowers therefore routinely recouped their
investment in a short period and then had little incentive to either repay the loans or run the
business. Frequently they bled the company with impunity, siphoning off funds with the DFI
nominee directors mute spectators in their boards.
This sordid but increasingly familiar process usually continued till the company’s net worth was
completely eroded. This stage would come after the company has defaulted on its loan
obligations for a while, but this would be the stage where India’s bankruptcy reorganization
system driven by the 1985 Sick Industrial Companies Act(SICA) would consider it “sick” and
refer it to the Board for Industrial and Financial Reconstruction (BIFR). As soon as a company is
registered with the BIFR it wins immediate protection from the creditors’ claims for at least four
years. Between 1987 and 1992 BIFR took well over two years on an average to reach a decision,
after which period the delay has roughly doubled. Very few companies have emerged
successfully from the BIFR and even for those that needed to be liquidated, the legal process
takes over 10 years on average, by which time the assets of the company are practically
worthless. Protection of creditors’ rights has therefore existed only on paper in India. Given this
situation, it is hardly surprising that banks, flush with depositors’ funds routinely decide to lend
only to blue chip companies and park their funds in government securities.
Financial disclosure norms in India have traditionally been superior to most Asian countries
though fell short of those in the USA and other advanced countries. Noncompliance with
disclosure norms and even the failure of auditor’s reports to conform to the law attract nominal
fines with hardly any punitive action. The Institute of Chartered Accountants in India has not
been known to take action against erring auditors. While the Companies Act provides clear
instructions for maintaining and updating share registers, in reality minority shareholders have
often suffered from irregularities in share transfers and registrations – deliberate or unintentional.
Sometimes non-voting preferential shares have been used by promoters to channel funds and
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deprive minority shareholders of their dues. Minority shareholders have sometimes been
defrauded by the management undertaking clandestine side deals with the acquirers in the
relatively scarce event of corporate takeovers and mergers. Boards of directors have been largely
ineffective in India in monitoring the actions of management. They are routinely packed with
friends and allies of the promoters and managers, in flagrant violation of the spirit of corporate
law. The nominee directors from the DFIs, who could and should have played a particularly
important role, have usually been incompetent or unwilling to step up to the act. Consequently,
the boards of directors have largely functioned as rubber stamps of the management. For most of
the post-Independence era the Indian equity markets were not liquid or sophisticated enough to
exert effective control over the companies. Listing requirements of exchanges enforced some
transparency, but non-compliance was neither rare nor acted upon. All in all therefore, minority
shareholders and creditors in India remained effectively unprotected in spite of a plethora of laws
in the books. The years since liberalization have witnessed wide-ranging changes in both laws
and regulations driving corporate governance as well as general consciousness about it. Perhaps
the single most important development in the field of corporate governance and investor
protection in India has been the establishment of the Securities and Exchange Board of India
(SEBI) in 1992 and its gradual empowerment since then. Established primarily to regulate and
monitor stock trading, it has played a crucial role in establishing
The basic minimum ground rules of corporate conduct in the country. Concerns about corporate
governance in India were, however, largely triggered by a spate of crises in the early 90’s – the
Harshad Mehta stock market scam of 1992 followed by incidents of companies allotting
preferential shares to their promoters at deeply discounted prices as well as those of companies
simply disappearing with investors’ money.
These concerns about corporate governance stemming from the corporate scandals as well as
opening up to the forces of competition and globalization gave rise to several investigations into
the ways to fix the corporate governance situation in India. One of the first among such
endeavors was the CII Code for Desirable Corporate Governance developed by a committee
chaired by Rahul Bajaj. The committee was formed in 1996 and submitted its code in April
1998. Later SEBI constituted two committees to look into the issue of corporate governance –
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the first chaired by Kumar Mangalam Birla that submitted its report in early 2000 and the second
by Narayana Murthy three years later.
These important efforts at improving corporate governance in India. The SEBI committees
Recommendations have had the maximum impact on changing the corporate governance
Situation in India. The Advisory Group on Corporate Governance of RBI’s standing Committee
on International Financial Standards and Codes also submitted its own Recommendations in
2001. A comparison of the three sets of recommendations in reveal the progress in the thinking
on the subject of corporate governance in India over the years. An outline provided by the CII
was given concrete shape in the Birla Committee report of SEBI. SEBI implemented the
recommendations of the Birla Committee through the enactment of Clause 49 of the Listing
Agreements. They were applied to companies in the BSE 200 and S&P C&X Nifty indices, and
all newly listed companies, on March 31, 2001; to companies with a paid up capital of Rs. 10
crore or with a net worth of Rs. 25 crore at any time in the past five years, as of March 31, 2002;
to other listed companies with a paid up capital of over Rs. 3 crore on March 31, 2003. The
Narayana Murthy committee worked on further refining the rules.
The recommendations also show that much of the thrust in Indian corporate Governance reform
has been on the role and composition of the board of directors and the disclosure laws. The Birla
Committee, however, paid much-needed attention to the subject of share transfers which is the
Achilles’ heel of shareholders’ right in India. The frequency of compliance of companies to the
different aspects of the corporate governance regulation. Clearly much more needs to be
accomplished in the area of compliance. Besides in the area of corporate governance, the spirit of
the laws and principles is much more important than the letter. Consequently, developing a
positive culture and atmosphere of corporate governance is essential is obtaining the desired
goals. Corporate governance norms should not become just another legal item to be checked off
by managers at the time of filing regulatory papers
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3. Guidelines and Codes of Corporate Governance In 1995, the Confederation of Indian Industry (CII) took a special initiative on corporate
governance – the first institutional initiative by Indian industry. It was soon followed by the
professional bodies like the Institute of Companies Secretaries of India (ICSI) during the year
1996-97 to focus the attention of the Indian corporate sector on the imperative need to evolve
new norms of governance to sustain and develop Indian industry on healthy lines. A working
group, set up by the Department of Company Affairs, also looked into the matter of Corporate
Governance, which needs to be introduced. The pressure for change was because of lack of
confidence of individual investors as well as of institutional investors. In 2002, the Security and
Exchange Board of India, as well as the Department of Company Affairs established Narayana
Murthy Committee and Naresh Chandra Committee, which in their reports have provided
guidelines for corporate governance, keeping in view developments in corporate sector
especially in the USA.
CII Code of Corporate Governance
In December 1995, the CII set-up a Committee under the chairmanship of industrialist Rahul
Bajaj to prepare a comprehensive voluntary code of corporate governance for listed companies.
The final draft report was released in April 1998. The CII Code on corporate governance
recommended that the: key information to be reported, listed companies to have audit
committees, corporate to give a statement on value addition, consolidation of accounts to be
optional. Main emphasis was on transparency, as stated by ShekarDatta, the then President of
CII, in the foreword to the Report:
“Corporate Governance is a phrase which implies transparency of management systems in
business and industry, be it private or public sector –all of which are corporate entities. Just as
industry seeks transparency in Government policies and procedures, so, corporate governance
seeks transparency in corporate sector
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UTI Code of Corporate Governance
In the year 1999, the Unit Trust of India (UTI) also formulated a code of corporate governance.
This was followed by the professional bodies like the Institute of Company Secretaries of India
(ICSI) to focus the attention of the Indian corporate sector, on the norms of governance and it set
up a National award of Excellence in Corporate Governance.
Birla Committee Report on Corporate Governance
SEBI constituted a Committee on corporate governance with as many as 18 members under the
chairmanship of Shri Kumar Mangalam Birla, to promote and raise the standards of corporate
governance in respect of listed companies on 7thMay 1999. This Committee, after a good deal of
deliberations with industrial associations and professional bodies, submitted its report on
25thJanuary 2000, and recommended various new norms of corporate governance. SEBI accepted
the recommendations, which culminated in the introduction of clause 49 in the standard Listing
Agreement for implementation by all stock exchanges for all listed companies, within a time
frame of three years commencing from the financial year 2000-2001. The main
recommendations of this Committee related to the composition of the board including
independent directors, constitution of audit committee in certain sized companies to look into the
financial aspects of a company, remuneration of directors, director’s report to include
management discussion and analysis report, better disclosure norms to the shareholders through
annual report, etc.
Regarding the composition of the board of directors of a company, the Committee was of the
view that the composition of the board of directors is critical to the independent functioning of
the board as it determines the ability of the board to collectively provide the leadership and
ensures that no one individual or group is able to dominate the board. The committee
recommended that the board of a company should have an optimum combination of executive
and non-executive directors, with not less than fifty percent of the board comprising the non-
executive directors. As the executive directors are involved in the day-to-day management of
companies, the non-executive directors bring external and wider perspective and independence to
the decision-making.
It has been the practice of most of the companies in India to fill the board with representatives of
the promoters of the company as independent directors. This has undergone a change and now
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the boards comprise of following groups of directors: Promoters’ directors, Executive directors,
non-executive directors, and a part of who are independent.
Based on these recommendations, the Companies (Amendment) Act 2000 introduced many
provisions relating to corporate governance including (a) additional ground of disqualification of
directors in certain cases, (b) setting up of audit committees, (c) director’s responsibility
statement in the directors’ report, (d) introduction of postal ballot for transacting certain items of
business in the general meeting, and (e) enforcement of accounting standards.
Corporate governance was also introspected by the Advisory Group constituted by the Standing
Committee on International Finance Standards and Codes of the Reserve Bank of India under the
Chairmanship of Dr. Y.V.Reddy the then Deputy Governor and later on the Governor of RBI.26
All these efforts focused the attention of the corporate boards that they should manage the affairs
of companies with better accountability to shareholders and achieve transparency of operations
with disclosure of both financial and non-financial data through annual report and other
periodical reports. As a result, annual report of listed Indian companies, now reflect in adequate
measure the new norms of governance.
Naresh Chandra Committee Report on Corporate Audit and Governance (2002)
The Enron debacle in July 2002, involving the hand-in-glove relationship between the auditor
and the corporate client and various other scams in the United States, and the consequent
enactment of the stringent Sarbanes – Oxley Act in the United States were some important
factors, which led the Indian government to wake up. The Department of Company Affairs in the
Ministry of Finance on 21 August 2002, appointed a high level committee, popularly known as
the Naresh Chandra Committee, to examine various corporate governance issues and to
recommend changes in the diverse areas involving the auditor-client relationships and the role of
independent directors. The Committee submitted its Report on 23 December 2002.
In its report, the Committee commented on: (a) the poor structure and composition of the board
of directors of Indian companies, (b) scant fiduciary responsibility, (c) poor disclosures and
transparency, (d) inadequate accounting and auditing standards, (e) the need for experts to go
through the minutest details of transactions among companies, banks and financial institutions,
capital markets etc. On the auditor – company relationship, the Committee recommended that the
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proprietary of auditors rendering non-audit services is a complex area, which needs to be
carefully dealt with. The recommendations of this Committee are more or less in line with the
Rules framed by the Securities & Exchange Commission (SEC) in accordance with the
provisions of the Sarbanes-Oxley Act 2002. The recommendations of the Naresh Chandra
Committee are expected to play a vital role in strengthening the composition and effectiveness of
the regulatory framework for good corporate governance.
Narayana Murthy Committee Report on corporate governance
In the year 2002 SEBI analyzed the statistics of compliance with clause 49 by listed companies
and felt that there was a need to look beyond the mere systems and procedures, if corporate
governance was to be made effective in protecting the interests of the investors. SEBI, therefore,
constituted a committee under the Chairmanship of N.R. Narayana Murthy, Chairman of Infosys
Technologies Ltd to review the performance of corporate governance in India and make
appropriate recommendations. The Committee included representatives from the stock
exchanges, chambers of commerce and industry, investor associations and professional bodies.
The Narayana Murthy Committee submitted its report on 8 February 2003.
In the meantime many of the recommendations of the Naresh Chandra Committee found their
acceptance in the form of the Companies (Amendment) Bill of 2003, which was introduced in the
Parliament in May 2003, but now had been withdrawn. The mandatory recommendations of the
Committee relate to; (a) the role and functions of the Audit committee, (b) the risk management
and minimization procedures, (c) the uses and the application of funds received from the initial
public offers, (d) code of conduct for the board, (e) nominee directors and independent directors.
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4. Concept of Corporate GovernanceCorporate governance is the set of processes, customs, policies, laws, and institutions affecting
the way a corporation is directed, administered or controlled. Corporate governance also includes
the relationships among the many stakeholders involved and the goals for which the corporation
is governed. The principal stakeholders are the shareholders, management, and the board of
directors. Other stakeholders include employees, customers, creditors, suppliers, regulators, and
the community at large
Corporate Governance is not just the rules, regulations and law prescribed but it the culture of
relationships. The working of corporate governance depends on how the participants behave and
interact with each other. An important part of corporate governance deals with accountability,
fiduciary duty, disclosure to shareholders and others, and mechanisms of auditing and control. In
this sense, corporate governance players should comply with codes to the overall good of all
constituents.
Corporate Governance is the mechanism by which the values, principles, policies and procedures
of a corporation are inculcated and manifested. The essence of corporate governance lies in
promoting and maintaining integrity, transparency and accountability in the working of
management.
Good corporate governance plays a vital role in underpinning the integrity and efficiency of
financial markets. Poor corporate governance weakens a company’s potential and at worst can
pave the way for financial difficulties and even fraud. If companies are well governed, they will
usually outperform other companies and will be able to attract investors whose support can help
to finance further growth though the concept and form of Corporate Governance is evolving over
the years, it inherently requires continuous nurturing and adapting to the dynamic business
environment.
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Principles
Key elements of good corporate governance principles include honesty, trust and integrity,
openness, performance orientation, responsibility and accountability, mutual respect, and
commitment to theorganization
Commonly accepted principles of corporate governance include
i. Rights and equitable treatment of shareholders: Organizations should respect the
rights of shareholders and help shareholders to exercise those rights. They can help
shareholders exercise their rights by effectively communicating information that is
understandable and accessible and encouraging shareholders to participate in general
meetings.
ii. Interests of other stakeholders: Organizations should recognize that they have legal and
other obligations to all legitimate stakeholders
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iii. Role and responsibilities of the board: The board needs a range of skills and
understanding to be able to deal with various business issues and have the ability to
review and challenge management performance. It needs to be of sufficient size and have
an appropriate level of commitment to fulfill its responsibilities and duties. There are
issues about the appropriate mix of executive and non-executive directors. The key roles
of chairperson and CEO should not be held by the same person.
iv. Integrity and ethical behaviors: Ethical and responsible decision making is not only
important for public relations, but it is also a necessary element in risk management and
avoiding lawsuits. Organizations should develop a code of conduct for their directors and
executives that promotes ethical and responsible decision making. It is important to
understand, though, that reliance by a company on the integrity and ethics of individuals
is bound to eventual failure. Because of this, many organizations establish Compliance
and Ethics Programs to minimize the risk that the firm steps outside of ethical and legal
boundaries.
v. Disclosure and transparency: Organizations should clarify and make publicly known
the roles and responsibilities of board and management to provide shareholders with a
level of accountability. They should also implement procedures to independently verify
and safeguard the integrity of the company's financial reporting. Disclosure of material
matters concerning the organization should be timely and balanced to ensure that all
investorshaveaccesstoclear,factualinformation.
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5. Definition of corporate governance
“Corporate governance is the system by which companies are directed and controlled….”
- Cadbury Report (UK) 1992
“Corporate governance deals with the ways in which suppliers of finance to corporations
assure themselves of getting a return on their investment.”
-Shleifer and Vishny
The term corporate governance has come to mean two things
The processes by which companies are directed and controlled.
A field in economics, which studies the many issues arising from the separation of
ownership and control.
Relevant rules include applicable laws of the land as well as internal rules of a corporation.
Relationships include those between all related parties, the most important of which are the
owners, managers, directors of the board, regulatory authorities and to a lesser extent employees
and the community at large. Systems and processes deal with matters such as delegation of
authority. The corporate governance structure specifies the rules and procedures for making
decisions on corporate affairs. It also provides the structure through which the company
objectives are set, as well as the means of attaining and monitoring the performance of those
objectives.
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6. Origin of corporate governance
Roots of Corporate Governance
Kautilya’s (Chanakya) Arthashastra (around 300 B.C)- “In the happiness of the subjects lies the benefit of the king and in what is beneficial to the subjects is his own benefit” (1.19.34)
The East India Company introduced a Court of Directors, separating ownership and control (U.K., the Netherlands) in 1600s
In 1991 Sir Adrian Cadbury was asked in May’1991 to chair the committee in the financial aspects of Corporate Governance by the financial reporting council the London Stock Exchange and the accounting profession.
In Dec 1992 Sir Adrian Cadbury Committee, UK report on Financial Aspects of Corporate Governance and it took the view that governance was not a matter of legislation and the report produced a code of Best Practice, comprising 19 provisions and 14 notes dealing with Board and committee structures, remuneration and financial reporting and describing the appropriate relationship with auditors.
This led to London Stock exchange asking the listed companies whether they complied with Cadbury rules or were asked to explain in case of non-compliance.
Alongside, Fat cat corporate scandals, on fixing remuneration, were on the rise. This led to constitution of Greenburg committee on director remuneration in Jan ’1995 reporting in July’1995.
The Greenburg committee produced its own code in relation to director’s remuneration and this code was adopted with the listing rules on a “Comply or explain “basis.
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Following the recommendations of Cadbury and Greenburg committees, a committee on CG was established of Sir. Ronald Ham bell the then Chairman of ICI.
The final report of Ronald Hampbell came in Jan’1998 which is popularly known as “Hampbell committee report”
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7. Origin of corporate governance in India
Roots of Corporate Governance in India
In 1998, the Confederation of Indian Industry ("CII"), "India's premier business association," unveiled India's first code of corporate governance.
In 1999, in a defining moment in India's corporate-governance history, the Indian Parliament created the Securities and Exchange Board of India ("SEBI") to "protect the interests of investors in securities and to promote the development of, and to regulate the securities market."
Corporate Governance code for the listed companies in India was framed by SEBI in 2000 and has been amended few times since its inception.
SEBI appointed the Birla Committee to fashion a code of corporate governance. In 2000, SEBI accepted the recommendations of the Birla Committee and introduced Clause 49 into the Listing Agreement of Stock Exchanges.
The First code for CG was enacted based on the Kumar Mangalam Birla Committee 1999; guidelines were issued in 2000 report. Companies are also required to furnish statements and reports for the Electronic Data Information Filing and Retrieval (EDIFAR) system maintained by SEBI.
The report has also set out recommendations of Naresh Chandra Committee (2002) on Corporate Audit and governance set up by Department of Company Affairs.
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To further improve the guidelines SEBI constituted a Committee on Corporate Governance (Chairman, N.R. Narayana Murthy) whose report was presented on (08.02.2003.)
SEBI has since incorporated the recommendations of the Murthy Committee, and the latest revisions to Clause 49 became law on January 1, 2006.
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8. Corporate Governance in Listed Companies Clause 49 of the Listing AgreementSEBI is the regulating body which regulates all the companies. The rules and regulations are
prescribed by SEBI for all the companies. SEBI has prescribed Clause 49 of the Listing
Agreement for all Stock Exchanges. All Stock Exchanges are hereby directed to amend the
Listing Agreement by replacing the existing Clause 49 of the Listing Agreement.
The provisions of the revised Clause 49 shall be implemented as per the schedule of
implementation given below:
a. The entities seeking listing for the first time, at the time of seeking in- principle approval
for such listing is required.
b. The existing listed companies which are required to comply with revised clause 49 of the
Listing Agreement should have a paid up capital of Rs. 3 cores and above or net worth of
Rs. 25 corers or more at any time in the history of the company, by April 1, 2005.
c. The companies complying with revised Clause 49 of the Listing Agreement have to
submit a quarterly compliance report to the stock exchange as per the sub clause VI (ii) in
the revised Clause 49 of the Listing Agreement, within 15 days from the end of every
quarter. The report shall be signed either by the Compliance Officer or the Chief
Executive Officer of the company.
d. The Stock Exchanges shall ensure that the provisions of the revised clause are complied
with, by companies seeking listing for the first time. For this the company had to set up
its Board and constituted committees such as Audit Committee, Shareholders/investors
Grievances Committee etc. before seeking approval for listing.
e. The Stock exchange should set up a separate monitoring cell to monitor the compliance
with the provisions of the revised Clause 49 on Corporate Governance. The cell, after
receiving the quarterly compliance reports from the companies complying with the
requirements of the revised Clause 49, shall submit a consolidated compliance report to
SEBI within 60 days from the end of each quarter.
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Clause 49 of the Listing Agreement
SEBI/CFD/DIL/CG/1/2004/12/10
The October 29, 2004
Managing Director/Executive Director/Administrator
of all the Stock Exchanges
Dear Sir/Madam,
Sub: Corporate Governance in listed Companies – Clause 49 of the Listing Agreement
All Stock Exchanges are hereby directed to amend the Listing Agreement by replacing the
existing Clause 49 of the listing agreement (issued vide circulars dated 21st February, 2000,
9th March 2000, 12th September 2000, 22nd January, 2001, 16th March 2001 and 31st
December 2001) with the revised Clause 49 given I Annexure I through ID to this circular.
SEBI Circular no. SEBI/MRD/SE/31/2003/ 26/08 dated August 26, 2003 (which has been since
deferred) is hereby withdrawn. The Revised Clause 49 also specifies the reporting requirements
for a company.
1) Please note that this is a master circular which supersedes all other earlier circulars Issued
by SEBI on Clause 49 of the Listing Agreement.
2) The provisions of the revised Clause 49 shall be implemented as per the schedule of
Implementation given below:
For entities seeking listing for the first time, at the time of seeking in-principle
approval for such listing.
For existing listed entities which were required to comply with Clause 49 which is
being revised i.e. those having a paid up share capital of Rs. 3 crores and above or
net worth of Rs. 25 crores or more at any time in the history of the company, by
April 1, 2005 Companies complying with the provisions of the existing Clause 49
at present (issued vide circulars dated 21st February, 2000, 9th March 2000, 12th
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September 2000, 22nd January, 2001 16th March 2001 and 31st December 2001)
shall continue to do so till the revised Clause 49 of the Listing Agreement is
complied with or till March 31, 2005,whichever is earlier.
The companies which are required to comply with the requirements of the revised
Clause 49 shall submit a quarterly compliance report to the stock exchanges as
per sub Clause VI (ii), of the revised Clause 49, within 15 days from the end of
every quarter. The first such report would be submitted for the quarter ending
June 30, 2005. The report shall be signed either by the Compliance Officer or the
Chief Executive Officer of the company.
3) The revised Clause 49 shall apply to all the listed companies, in accordance with the
schedule of implementation given above. However, for other listed entities which are not
companies, but body corporate (e.g. private and public sector banks, financial institutions,
insurance companies etc.) incorporated under other statutes, the revised Clause 49 will
apply to the extent that it does not violate their respective statutes and guidelines or
directives issued by the relevant regulatory authorities. The revised Clause 49 is not
applicable to Mutual Funds.
4) The Stock Exchanges shall ensure that all provisions of the revised Clause 49 have been
complied with by a company seeking listing for the first time, before granting the in-
principle approval for such listing. For this purpose, it will be considered satisfactory
compliance if such a company has set up its Board and constituted committees such as
Audit Committee, Shareholders/ Investors Grievances Committee etc. in accordance with
the revised clause before seeking in-principle approval for listing.
5) The Stock Exchanges shall set up a separate monitoring cell with identified personnel t
monitor the compliance with the provisions of the revised Clause 49 on corporate
governance. The cell, after receiving the quarterly compliance reports from the
companies which are required to comply with the requirements of the revised Clause 49,
shall submit a consolidated compliance report to SEBI within 60 days from the end of
each quarter.
Encl: Annexure I, I A, I B, I C & I
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Annexure I
Clause 49 - Corporate Governance
The company agrees to comply with the following provisions:
I. Board of Directors
(A) Composition of Board
i. The Board of directors of the company shall have an optimum combination of executive
and non-executive directors with not less than fifty percent of the board of directors
comprising of non-executive directors.
ii. Where the Chairman of the Board is a non-executive director, at least one-third of the
Board should comprise of independent directors and in case he is an executive director,
at least half of the Board should comprise of independent directors.
iii. For the purpose of the sub-clause (ii), the expression ‘independent director’ shall mean a
non-executive director of the company who:
apart from receiving director’s remuneration, does not have any material
pecuniary relationships or transactions with the company, its promoters, its
directors, its senior management or its holding company, its subsidiaries and
associates which may affect independence of the director;
is not related to promoters or persons occupying management positions at the
board level or at one level below the board;
Has not been an executive of the company in the immediately preceding three
financial years;
is not a partner or an executive or was not partner or an executive during the
preceding three years, of any of the following:
the statutory audit firm or the internal audit firm that is associated with the
company, and
the legal firm(s) and consulting firm(s) that have a material association with the
company.
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is not a material supplier, service provider or customer or a lessor or lessee of the
company, which may affect independence of the director; and
is not a substantial shareholder of the company i.e. owning two percent or more of
the block of voting shares.
Explanation
For the purposes of the sub-clause (iii):
a) Associate shall mean a company which is an “associate” as defined in Accounting
Standard (AS) 23, “Accounting for Investments in Associates in Consolidated Financial
Statements”, issued by the Institute of Chartered Accountants of India.
b) “Senior management” shall mean personnel of the company who are members of its core
management team excluding Board of Directors. Normally, this would comprise all
members of management one level below the executive directors, including all functional
heads.
c) “Relative” shall mean “relative” as defined in section 2(41) and section 6 read with
Schedule IA of the Companies Act, 1956..
d) Nominee directors appointed by an institution which has invested in or lent to the
company shall be deemed to be independent directors.
Explanation:
“Institution’ for this purpose means a public financial institution as defined in Section 4A of the
Companies Act, 1956 or a “corresponding new bank” as defined in section 2(d) of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970 or the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1980 [both Acts].”
(B) Non executive directors’ compensation and disclosures
All fees/compensation, if any paid to non-executive directors, including independent directors,
shall be fixed by the Board of Directors and shall require previous approval of shareholders in
general meeting. The shareholders’ resolution shall specify the limits for the maximum number
of stock options that can be granted to non-executive directors, including independent directors,
in any financial year and in aggregate.
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(C) Other provisions as to Board and Committees
i. The board shall meet at least four times a year, with a maximum time gap of three months
between any two meetings. The minimum information to be made available to the board
is given in Annexure– I A.
ii. A director shall not be a member in more than 10 committees or act as Chairman of more
than five committees across all companies in which he is a director. Furthermore it
should be a mandatory annual requirement for every director to inform the company
about the committee positions he occupies in other companies and notify changes as and
when they take place.
Explanation:
i. For the purpose of considering the limit of the committees on which a director can serve,
all public limited companies, whether listed or not, shall be included and all other
companies including private limited companies, foreign companies and companies under
Section 25 of the Companies Act shall be excluded.
ii. For the purpose of reckoning the limit under this sub-clause, Chairmanship/ membership
of the Audit Committee and the Shareholders’ Grievance Committee alone shall be
considered.
iii. The Board shall periodically review compliance reports of all laws applicable to the
company, prepared by the company as well as steps taken by the company to rectify
instances of non-compliances.
(D) Code of Conduct
i. The Board shall lay down a code of conduct for all Board members and senior
management of the company. The code of conduct shall be posted on the website of the
company.
ii. All Board members and senior management personnel shall affirm compliance with th
code on an annual basis. The Annual Report of the company shall contain a declaration
to this effect signed by the CEO.
Explanation: For this purpose, the term “senior management” shall mean personnel of the
company who are members of its core management team excluding Board of Directors..
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Normally, this would comprise all members of management one level below the executive
directors, including all functional heads.
II Audit Committee
(A) Qualified and Independent Audit Committee
A qualified and independent audit committee shall be set up, giving the terms of reference
subject to the following:
i. The audit committee shall have minimum three directors as members. Two-thirds of the
members of audit committee shall be independent directors.
ii. All members of audit committee shall be financially literate and at least one member
shall have accounting or related financial management expertiseExplanation 1: The term
“financially literate” means the ability to read and understand basic financial statements
i.e. balance sheet, profit and loss account, and statement of cash flows.Explanation 2: A
member will be considered to have accounting or related financial management expertise
if he or she possesses experience in finance or accounting, or requisite professional
certification in accounting, or any other comparable experience or background which
results in the individual’s financial sophistication, including being or having been a chief
executive officer, chief financial officer or other senior officer with financial oversight
responsibilities.
iii. The Chairman of the Audit Committee shall be an independent director;
iv. The Chairman of the Audit Committee shall be present at Annual General Meeting to
answer shareholder queries;
v. The audit committee may invite such of the executives, as it considers appropriate and
particularly the head of the finance function) to be present at the meetings of the
committee, but on occasions it may also meet without the presence of any executives of
the company. The finance director, head of internal audit and a representative of the
statutory auditor may be present as invitees for the meetings of the audit committee;
vi. The Company Secretary shall act as the secretary to the committee.
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(B) Meeting of Audit Committee
The audit committee should meet at least four times in a year and not more than four months
shall elapse between two meetings. The quorum shall be either two members or one third of the
members of the audit committee whichever is greater, but there should be a minimum of two
independent members present.
(C) Powers of Audit Committee
The audit committee shall have powers, which should include the following:
1. To investigate any activity within its terms of reference.
2. To seek information from any employee.
3. To obtain outside legal or other professional advice.
4. To secure attendance of outsiders with relevant expertise, if it considers necessary.
(D) Role of Audit Committee
The role of the audit committee shall include the following:
i. Oversight of the company’s financial reporting process and the disclosure of its financial
information to ensure that the financial statement is correct, sufficient and credible.
ii. Recommending to the Board, the appointment, re-appointment and, if required, the
replacement or removal of the statutory auditor and the fixation of audit fees.
iii. Approval of payment to statutory auditors for any other services rendered by the statutory
auditors.
iv. Reviewing, with the management, the annual financial statements before submission to
the board for approval, with particular reference to: Matters required to be included in the
Director’s Responsibility Statement to be included in the Board’s report in terms of
clause (2AA) of section 217 of the Companies Act, 1956
Changes, if any, in accounting policies and practices and reasons for the same
Major accounting entries involving estimates based on the exercise of judgment by
management
Significant adjustments made in the financial statements arising out of audit findings
Compliance with listing and other legal requirements relating to financial statements
Disclosure of any related party transactions
Qualifications in the draft audit report.
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v. Reviewing, with the management, the quarterly financial statements before submission to
the board for approval
vi. Reviewing, with the management, performance of statutory and internal auditors
adequacy of the internal control systems.
vii. Reviewing the adequacy of internal audit function, if any, including the structure of the
internal audit department, staffing and seniority of the official heading the department,
reporting structure coverage and frequency of internal audit.
viii. Discussion with internal auditors any significant findings and follow up there on.
ix. Reviewing the findings of any internal investigations by the internal auditors into matters
where there is suspected fraud or irregularity or a failure of internal control systems of a
material nature and reporting the matter to the board.
x. Discussion with statutory auditors before the audit commences, about the nature and
scope of audit as well as post-audit discussion to ascertain any area of concern.
xi. To look into the reasons for substantial defaults in the payment to the depositors
debenture holders, shareholders (in case of nonpayment of declared dividends) and
creditors.
xii. To review the functioning of the Whistle Blower mechanism, in case the same is
existing.
xiii. Carrying out any other function as is mentioned in the terms of reference of the Audit
Committee.
Explanation (i): The term "related party transactions" shall have the same meaning as contained
in the Accounting Standard 18, Related Party Transactions, issued by The Institute of Chartered
Accountants of India.
Explanation (ii): If the company has set up an audit committee pursuant to provision of the
Companies Act, the said audit committee shall have such additional functions / features as is
contained in this clause.
(E) Review of information by Audit Committee
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The Audit Committee shall mandatorily review the following information:
i. Management discussion and analysis of financial condition and results of operations;
ii. Statement of significant related party transactions (as defined by the audit committee),
submitted by management;
iii. Management letters / letters of internal control weaknesses issued by the statutory
auditors;
iv. Internal audit reports relating to internal control weaknesses; and
v. The appointment, removal and terms of remuneration of the Chief internal auditor shall
be subject to review by the Audit Committee
III. Subsidiary Companies
i. At least one independent director on the Board of Directors of the holding company shall
be a director on the Board of Directors of a material non listed Indian subsidiary
company.
ii. The Audit Committee of the listed holding company shall also review the financial
statements, in particular, the investments made by the unlisted subsidiary company.
iii. The minutes of the Board meetings of the unlisted subsidiary company shall be placed at
the Board meeting of the listed holding company. The management should periodically
bring to the attention of the Board of Directors of the listed holding company, a statement
of all significant transactions and arrangements entered into by the unlisted subsidiary
company.
Explanation 1: The term “material non-listed Indian subsidiary” shall mean an unlisted
subsidiary, incorporated in India, whose turnover or net worth (i.e. paid up capital and free
reserves) exceeds 20% of the consolidated turnover or net worth respectively, of the listed
holding company and its subsidiaries in the immediately preceding accounting year.
Explanation 2: The term “significant transaction or arrangement” shall mean any individual
transaction or arrangement that exceeds or is likely to exceed 10% of the total revenues or total
expenses or total assets or total liabilities, as the case may be, of the material unlisted subsidiary
for the immediately preceding accounting year.
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Explanation 3: Where a listed holding company has a listed subsidiary which is itself a holding
company, the above provisions shall apply to the listed subsidiary insofar as its subsidiaries are
concerned.
IV. Disclosures
(A) Basis of related party transactions
i. A statement in summary form of transactions with related parties in the ordinary course
of business shall be placed periodically before the audit committee.
ii. Details of material individual transactions with related parties which are not in the
normal course of business shall be placed before the audit committee.
iii. Details of material individual transactions with related parties or others, which are not on
an arm’s length basis should be placed before the audit committee, together with
Management’s justification for the same..
(B) Disclosure of Accounting Treatment
Where in the preparation of financial statements, a treatment different from that prescribed in an
Accounting Standard has been followed, the fact shall be disclosed in the financial statements,
together with the management’s explanation as to why it believes such alternative treatment is
more representative of the true and fair view of the underlying business transaction in the
Corporate Governance Report.
(C) Board Disclosures – Risk management
The company shall lay down procedures to inform Board members about the risk assessment and
minimization procedures. These procedures shall be periodically reviewed to ensure that
executive management controls risk through means of a properly defined framework.
(D) Proceeds from public issues, rights issues, preferential issues etc.
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When money is raised through an issue (public issues, rights issues, preferential issues etc.), it
shall disclose to the Audit Committee, the uses / applications of funds by major category (capital
expenditure, sales and marketing, working capital, etc), on a quarterly basis as a part of their
quarterly declaration of financial results. Further, on an annual basis, the company shall prepare
a statement of funds utilized for purposes other than those stated in the offer
document/prospectus/notice and place it before the audit committee. Such disclosure shall be
made only till such time that the full money raised through the issue has been fully spent. This
statement shall be certified by the statutory auditors of the company. The audit committee shall
make appropriate recommendations to the Board to take up steps in this matter.
(E) Remuneration of Directors
i. All pecuniary relationship or transactions of the non-executive directors vis-à-vis the
company shall be disclosed in the Annual Report.
ii. Further the following disclosures on the remuneration of directors shall be made in the
section on the corporate governance of the Annual Report:
(a) All elements of remuneration package of individual directors summarized under
major groups, such as salary, benefits, bonuses, stock options, pension etc.
(b) Details of fixed component and performance linked incentives, along with the
performance criteria.
(c) Service contracts, notice period, severance fees. (d) Stock option details, if any – and
whether issued at a discount as well as the period over which accrued and over which
exercisable.
iii. The company shall publish its criteria of making payments to non-executive directors in
its annual report. Alternatively, this may be put up on the company’s website and
reference drawn thereto in the annual report.
iv. The company shall disclose the number of shares and convertible instruments held by
non-executive directors in the annual report.
v. Non-executive directors shall be required to disclose their shareholding (both own or held
by / for other persons on a beneficial basis) in the listed company in which they are
proposed to be appointed as directors, prior to their appointment. These details should be
disclosed in the notice to the general meeting called for appointment of such director
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(F) Management
i. As part of the directors’ report or as an addition thereto, a Management Discussion and
Analysis report should form part of the Annual Report to the shareholders. This
Management Discussion & Analysis should include discussion on the following matters
within the limits set by the company’s competitive position:
i. Industry structure and developments.
ii. Opportunities and Threats.
iii. Segment–wise or product-wise performance.
iv. Out lookv. Risks and concerns.
v. Internal control systems and their adequacy.
vi. Discussion on financial performance with respect to operational performance.
vii. Material developments in Human Resources / Industrial Relations front, including
number of people employed.
ii. (Senior management shall make disclosures to the board relating to all material financial
and commercial transactions, where they have personal interest that may have a potential
conflict with the interest of the company at large (for e.g. dealing in company shares,
commercial dealings with bodies, which have shareholding of management and their
relatives etc.)
Explanation: For this purpose, the term "senior management" shall mean personnel of the
company who are members of its. core management team excluding the Board of Directors).
This would also include all members of management one level below the executive directors
including all functional heads.
(G) Shareholders
I. In case of the appointment of a new director or re-appointment of a director the
shareholders must be provided with the following information:
(a) A brief resume of the director;
(b) Nature of his expertise in specific functional areas;
(c) Names of companies in which the person also holds the directorship and the membership
of Committees of the Board; and
Page | 36
(d) Shareholding of non-executive directors as stated in Clause 49 (IV) (E) (v) above
II. Quarterly results and presentations made by the company to analysts shall be put on
company’s web-site, or shall be sent in such a form so as to enable the stock exchange on
which the company is listed to put it on its own web-site.
III. A board committee under the chairmanship of a non-executive director shall be formed
to specifically look into the redressal of shareholder and investors complaints like transfer
of shares, non-receipt of balance sheet, non-receipt of declared dividends etc. This
Committee shall be designated as ‘Shareholders/Investors Grievance Committee’.
IV. To expedite the process of share transfers, the Board of the company shall delegate the
power of share transfer to an officer or a committee or to the registrar and share transfer
agents. The delegated authority shall attend to share transfer formalities at least once in a
fortnight.
V. CEO/CFO certification
The CEO, i.e. the Managing Director or Manager appointed in terms of the Companies Act, 1956
and the CFO i.e. the whole-time Finance Director or any other person heading the finance
function discharging that function shall certify to the Board that:
I. They have reviewed financial statements and the cash flow statement for the year and
that to the best of their knowledge and belief :
(i) these statements do not contain any materially untrue statement or omit any material fact
or contain statements that might be misleadin;
(ii) these statements together present a true and fair view of the company’s affairs and are in
compliance with existing accounting standards, applicable laws and regulations.
II. There are, to the best of their knowledge and belief, no transactions entered into by the
company during the year which are fraudulent, illegal or volatile of the company’s code
of conduct.
III. They accept responsibility for establishing and maintaining internal controls and that they
have evaluated the effectiveness of the internal control systems of the company and they
have disclosed to the auditors and the Audit Committee, deficiencies in the design or
Page | 37
operation of internal controls, if any, of which they are aware and the steps they have
taken or propose to take to rectify these deficiencies.
IV. They have indicated to the auditors and the Audit committee
(i) significant changes in internal control during the year;
(ii) significant changes in accounting policies during the year and that the same have been
disclosed in the notes to the financial statements; and
(iii) instances of significant fraud of which they have become aware and the involvement therein,
if any, of the management or an employee having a significant role in the company’s internal
control system
VI. Report on Corporate Governance
(i) There shall be a separate section on Corporate Governance in the Annual Reports of
company, with a detailed compliance report on Corporate Governance. Non-compliance of any
mandatory requirement of this clause with reasons thereof and the extent to which the non-
mandatory requirements have been adopted should be specifically highlighted. The suggested list
of items to be included in this report is given in
Annexure- I C and list of non-mandatory requirements is given in Annexure – I D. (ii) The
companies shall submit a quarterly compliance report to the stock exchanges within 15 days
from the close of quarter as per the format given in Annexure I B. The report shall be signed
either by the Compliance Officer or the Chief Executive Officer of the company
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VII. Compliance
(1) The company shall obtain a certificate from either the auditors or practicing company
secretaries regarding compliance of conditions of corporate governance as stipulated in this
clause and annex the certificate with the directors’ report, which is sent annually to all the
shareholders of the company. The same certificate shall also be sent to the Stock Exchanges
along with the annual report filed by the company.
(2) The non-mandatory requirements given in Annexure – I D may be implemented as per the
discretion of the company. However, the disclosures of the compliance with mandatory
requirements and adoption (and compliance) / non-adoption of the non-mandatory requirements
shall be made in the section on corporate governance of the Annual Report.
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Annexure I A
Information to be placed before Board of Directors
1) Annual operating plans and budgets and any updates.
2) Capital budgets and any updates.
3) Quarterly results for the company and its operating divisions or business segments.
4) Minutes of meetings of audit committee and other committees of the board.
5) The information on recruitment and remuneration of senior officers just below the board
level, including appointment or removal of Chief Financial Officer and the Company
Secretary.
6) Show cause, demand, prosecution notices and penalty notices which are materially
important
7) Fatal or serious accidents, dangerous occurrences, any material effluent or pollution
problems.
8) Any material default in financial obligations to and by the company, or substantial
nonpayment for goods sold by the company.
9) Any issue, which involves possible public or product liability claims of substantial
nature, including any judgement or order which, may have passed strictures on the
conduct of the company or taken an adverse view regarding another enterprise that can
have negative implications on the company.
10) Details of any joint venture or collaboration agreement.
11) Transactions that involve substantial payment towards goodwill, brand equity, or
intellectual property.
12) Significant labour problems and their proposed solutions. Any significant development in
Human Resources/ Industrial Relations front like signing of wage agreement,
implementation of Voluntary Retirement Scheme etc.
13) Sale of material nature, of investments, subsidiaries, assets, which is not in normal course
of business.
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14) Quarterly details of foreign exchange exposures and the steps taken by management
limit the risks of adverse exchange rate movement, if material
15) Non-compliance of any regulatory, statutory or listing requirements and shareholder
service such as non-payment of dividend, delay in share transfer etc.
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Ann
exure IB
Format of Quarterly Compliance Report on Corporate Governance
Name of the Company:
Quarter ending on:
Particulars Clause of
Listing
agreement
Compliance
Status
Yes/No
Remarks
I. Board of Directors 49 I
(A)Composition of Board 49(IA)
(B)Non-executive Director’s compensation
& disclosures
49 (IB)
(C)Other provisions as to Board and
Committees
49 (IC)
(D)Code of Conduct 49(ID)
II. Audit Committee 49 (II)
(A)Qualified & Independent Audit Committee 49 (IIA)
(B)Meeting of Audit Committee 49 (IIB)
(C)Powers of Audit Committee 49 (IIC)
(D)Role of Audit Committee 49 (IID)
(E)Review of Information by Audit
Committee
49 (IIE)
III. Subsidiary Companies 49 (III)
IV. Disclosures 49 (IV)
(A)Basis of related party transactions 49 (IVA)
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(B)Board Disclosures 49 (IVB)
(C)Proceeds from public issues, rights
issues,preferential issues etc.
49 (IVC)
(D)Remuneration of Directors 49 (IVD)
(E)Management 49 (IVE)
(F)Shareholders 49 (IVF)
V.CEO/CFO Certification 49 (V)
VI. Report on Corporate Governance 49 (VI)
VII. Compliance 49 (VII)
Note:-
1) The details under each head shall be provided to incorporate all the information required as
per the provisions of the Clause 49 of the Listing Agreement.
2) In the column No.3, compliance or non-compliance may be indicated by Yes/No/N.A.
For example, if the Board has been composed in accordance with the Clause 49 I of the Listing
Agreement, "Yes" may be indicated. Similarly, in case the company has no related party
transactions, the words “N.A.” may be indicated against 49 (IV A)
3) In the remarks column, reasons for non-compliance may be indicated, for example, in case of
requirement related to circulation of information to the shareholders, which would be done only
in the AGM/EGM, it might be indicated in the "Remarks" column as – “will be complied with at
the AGM”. Similarly, in respect of matters which can be complied with only where the situation
arises, for example, "Report on Corporate Governance" is to be a part of Annual Report only, the
words "will be complied in the next Annual Report" may be indicated
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Annexure I C
List of Items n the Report on Corporate Governance in the Annual Report of Companies
1. A brief statement on company’s philosophy on code of governance.
2. Board of Directors:
a. Composition and category of directors, for example, promoter, executive, nonexecutive,
independent non-executive, nominee director, which institution represented as lender or as equity
investor.
b. Attendance of each director at the Board meetings and the last AGM.
c. Number of other Boards or Board Committees in which he/she is a member or Chairperson
Number of Board meetings held, dates on which held.
3. Audit Committee:
Brief description of terms of reference
Composition, name of members and Chairperson
Meetings and attendance during the year
4. Remuneration Committee:
Brief description of terms of reference
Composition, name of members and Chairperson
Attendance during the year
Remuneration policy
Details of remuneration to all the directors, as per format in main report.
5. Shareholders Committee:
Name of non-executive director heading the committee
Name and designation of compliance officer
Number of shareholders’ complaints received so far
Number not solved to the satisfaction of shareholders
Number of pending complaints
6. General Body meetings:
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Location and time, where last three AGMs held.
Whether any special resolutions passed in the previous 3 AGMs
Whether any special resolution passed last year through postal ballot – details of
voting pattern
Person who conducted the postal ballot exercise
Whether any special resolution is proposed to be conducted through postal ballot
Procedure for postal ballot
7. Disclosures:
Disclosures on materially significant related party transactions that may have potential conflict
with the interests of company at large.
Details of non-compliance by the company, penalties, strictures imposed on the company by
Stock Exchange or SEBI or any statutory authority, on any matter related to capital markets,
during the last three years.
Whistle Blower policy and affirmation that no personnel has been denied access to the audit
committee.
Details of compliance with mandatory requirements and adoption of the non mandatory
requirements of this clause
8. Means of communication.
Quarterly results
Newspapers wherein results normally published
Any website, where displayed
Whether it also displays official news releases; and
The presentations made to institutional investors or to the analysts.
9. General Shareholder information:
AGM : Date, time and venue
Financial year
Date of Book closure
Dividend Payment Date
Listing on Stock Exchanges
Stock Code
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Market Price Data : High., Low during each month in last financial year
Performance in comparison to broad-based indices such as BSE Sensex,CRISIL index et
Registrar and Transfer Agents
Share Transfer System
Distribution of shareholding
Dematerialization of shares and liquidity
Outstanding GDRs/ADRs/Warrants or any Convertible instruments, conversion date
and likely impact on equity
Plant Locations
Address for correspondence
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Annexure I D
Non-Mandatory Requirements
(1) The Board
A non-executive Chairman may be entitled to maintain a Chairman’s office at the company’s
expense and also allowed reimbursement of expenses incurred in performance of his duties.
Independent Directors may have a tenure not exceeding, in the aggregate, a period of nine years,
on the Board of a company.
(2) Remuneration Committee
The board may set up a remuneration committee to determine on their behalf and on behalf of the
shareholders with agreed terms of reference, the company’s policy on specific remuneration
packages for executive directors including pension rights and any compensation payment.
To avoid conflicts of interest, the remuneration committee, which would determine the
remuneration packages of the executive directors may comprise of at least three directors, all of
whom should be non-executive directors, the Chairman of committee being an independent
director.
All the members of the remuneration committee could be present at the meeting.
The Chairman of the remuneration committee could be present at the Annual
General Meeting, to answer the shareholder queries. However, it would be up to the Chairman to
decide who should answer the queries.
(3) Shareholder Rights
A half-yearly declaration of financial performance including summary of the significant events
in last six-months, may be sent to each household of shareholders.
(4) Audit qualifications
Company may move towards a regime of unqualified financial statements.
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(5) Training of Board Members
A company may train its Board members in the business model of the company as well as the
risk profile of the business parameters of the company, their responsibilities as directors, and the
best ways to discharge them.
(6) Mechanism for evaluating non-executive Board Members
The performance evaluation of non-executive directors could be done by a peer group
comprising the entire Board of Directors, excluding the director being evaluated; and Peer Group
evaluation could be the mechanism to determine whether to extend continue the terms of
appointment of non-executive directors.
(7) Whistle Blower Policy
The company may establish a mechanism for employees to report to the management
Concerns about unethical behaviour, actual or suspected fraud or violation of the company’s
code of conduct or ethics policy. This mechanism could also provide for adequate safeguards
against victimization of employees who avail of the mechanism and also provide for direct
access to the Chairman of the Audit committee in exceptional cases. Established, the existence of
the mechanism may be appropriately communicated within the organization.
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In accordance with Clause 49 of the Listing Agreement with the Stock Exchanges in India
(Clause 49) and some of the best practices followed internationally on Corporate
Governance, the report containing the details of governance systems and processes at
Reliance Industries Limited is as
Under:
1. Company’s Philosophy on Code of Governance
Reliance’s philosophy on Corporate Governance envisages attainment of the highest levels of
transparency, accountability and equity in all facets of its operations, and in all its interactions
with its stakeholders, including shareholders, employees, lenders, Government and the society at
large. Reliance is committed to achieve and maintain the highest standards of Corporate
Governance. Reliance believes that all its actions must serve the underlying goal of enhancing
overall shareholder value on a sustained basis. Reliance is committed to the best governance
practices that create long term sustainable shareholder value. Keeping in view the Company’s
size, complexity, global operations and corporate traditions, the Reliance Governance framework
is based on the following main principles:
• Constitution of a Board of Directors of appropriate composition, size, varied expertise and
commitment to discharge its responsibilities and duties.
• Ensuring timely flow of information to the Board and its Committees to enable them to
discharge their functions effectively.
• Independent verification and safeguarding integrity of the Company’s financial reporting
• A sound system of risk management and internal control.
• Timely and balanced disclosure of all material information concerning the Company to all
stakeholders
• Transparency and accountability.
• Compliance with all the applicable rules and regulations
• Fair and equitable treatment of all its stakeholders including employees, customers,
shareholders and investors
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9. Corporate Governance in Banks
Banks play a very vital role in the economy of any country and the strengthening and stability of
the banking system is a matter general public interest and concern for providing a payment and
settlement system. However, today Banking has become complex and it has been recognized that
there is need to attach importance to qualitative standards such as internal controls and risk
management, composition and role of the board and disclosure standards. In India therefore
during the last few years, banks have initiated several steps towards Corporate Governance. Also
there is an increasing interest in Corporate Governance in banks due to certain developments
such as participation of the public shareholders in the public sector banks, also the entry of new
private banks and the need to access capital markets by all banks.
The generally accepted principles of Corporate Governance are similar and are applicable to
banks also. The key components of Corporate Governance are accountability, transparency,
predictability and participation. The governance approaches however differ from one banking
institution to another. But the fundamental element remains the same, which includes active
concern with understanding the responsibility and diligently discharging them in a prudent
manner.
The focus on Corporate Governance is particularly acute in financial services and most of all in
the banking sector. Governance in banks is considerably much more complex issue than in other
sectors. Banks exhibit strong linkages with the real sector of the economy and they are a major
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source of funding for all types of economic activities. Banks channelize the public saving to the
corporate world and other individuals for productive purposes. This important fact makes it clear
that banks and financial institution are the backbone of the economy and an important element
for the growth of the economy. With this kind of importance of banks and financial institutions,
they are under regulatory purview of the Central Bank of the country not only in India but all the
countries. The fact remains that banks are highly leveraged entities and also that their failure
would have a contagion effect on the entire financial system. Banking is however a very special
sub-set of corporate governance with much of its management obligations enshrined in law or
regulatory codes and so banks will attempt to comply with the same codes of board governance
as other companies. Governance is two-sided issue for banks because they fund their money and
also have ownership in other companies. This makes them a significant owner in their own right.
There is a lot of focus on raising the level of corporate governance in India mainly from the
angle of creating shareholder value and also bringing more transparency in the operations.. The
banks have to bring improvement in these standards so as to meet the competitive challenges and
the risk associated with the rapidly changing environment.
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10. Objectives of Corporate Governance in Banks
1. Corporate governance is very integral to the existence of a bank. It not only inspires and
strengthens the investor’s confidence but also helps the company to seek higher growth
and profits. Corporate Governance seeks to achieve following objectives:
2. A properly structured board with appropriate composition and size, capable of taking
independent and objective decisions and also which can adequately discharge its duties
and responsibilities.
3. The balanced board as regards to the adequate representation of the non-executive and
independent directors who will take care of the interests and well-being of all the
stakeholders and also of investors.
4. The board shall seek to adopt transparent practices and procedures and should arrive at
true and fair decisions and should carry out independent functions.
5. There should be timely and accurate disclosure on all matters concerning operations and
performance of the bank.
6. The board should keep the shareholders informed of relevant developments impacting the
company.
7. The bank should take adequate risk management and internal control measures.
11. Corporate Governance in Private Sector Banks
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Banks are ‘special’ entities as they not only accept and deploy large amounts of uncollateralized
public funds in fiduciary capacity, but also they leverage such funds though credit creation. They
are important for smooth functioning of the payment system. In view of the above, legal
prescriptions for ownership and governance of banks laid down in the Banking Regulation Act,
1949 which have been supplemented by regulatory prescriptions issued by RBI from time to
time.
The existing legal framework and significant current practices in particular cover the following
aspects:
1. The composition of the board of directors should comprise of members with professional
knowledge and their experience in specific sectors like agriculture, rural economy, law
etc. The responsibility of the directors should be well defined. There should be training
conducted for the directors in this regard. These guidelines on the matters of appointment
of directors, their roles and obligations were issued by the Reserve Bank of India.
2. The CEO, being the Director should also satisfy the requirements of the “fit and proper”
criteria applicable for directors. The CEO should be appointed after seeking the approval
from the Reserve Bank of India by providing all the information that may be required
while making the application to Reserve bank. These provisions are governed by various
sections in the Banking Regulation Act, 1949.
3. Practices followed by the Reserve Bank of India for nominating the directors on the
boards of private sector banks has now changed to nominate directors only in selected
private banks.
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4. It is necessary to lay down a comprehensive framework relating to the ownership and
governance in the Indian private sector banks in a transparent manner.
The framework of policy relating to ownership and governance of private sector banks should
ensure that
i. The ownership and control of private sector banks is well diversified which
minimizes the risk of misuse or careless use of funds.
ii. The shareholders having 5 percent and above shareholding in the company are
called as Important Shareholders. These important shareholders are ‘fit and
proper’ when their acknowledgement is given for allotment and transfer of shares.
iii. The private sector banks should have minimum capital of Rs.200crore initially
and 300crore within three years. In short it should have adequate capital to meet
its expenses and carry out its operations smoothly and maintain a systematic
stability. If the above mentioned capital reduces then bank should restore it within
a reasonable time.
iv. Also the bank directors and the CEO who manage the affairs of the bank should
practice sound corporate governance principles. And lastly, the policy and
processes which these banks adopt should be transparent and fair.
Issues which need to be taken Care of by Banks
These are the Ten Commandments for ensuring bank corporate Governance:
1. Banks shall realize the times are changing : The issue of corporate governance had not
been given the requisite attention in the past until the advent of some economic and
financial crises in the late 90’s. Times are changing now, and today even the smallest of
banks need to focus on corporate governance restructuring
2. Banks shall establish an effective capable and reliable board of directors: Banks should
see to it that the board of director of the bank is capable, effective and reliable enough.
His implies that the bank board of directors should be truly outside independent directors.
The board must be effective and should meet even in the absence of CEO in the meeting.
The board should set up a long term strategy, polices and values for the organization
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3. Banks shall establish a corporate code of ethics for themselves:
Corporate ethics and values should be established by the bank and should govern the
operations of the company both from a long term and short term view.
4. Banks shall consider establishing an officer of the Chairman of the Board : Many banks
are already examining this idea of establishing an officer of the chairman of the Board.
Such an officer will be made to report to the board and will act as the board’s eyes and
ears on a daily basis in connection with the functions of the banks.
5. Banks shall have effective and operating audit committee, compensation committee and
nominating/corporate governance committee: The audit committee, compensation
committee and nominating committee should be composed of all independent, outside
directors of the bank who operate independently. This independence of committees will
ensure that there is no bias in the internal audit committee’s decisions. The corporate
governance committee should also bear the responsibility of evaluating the board
members.
6. Banks shall consider the effective board compensation: Fair compensation should be
paid to the directors. The remuneration should be commensurate with the risks they
take. The bank should aim to appoint a highly qualified director and take appropriate
measures to retain them with organization as it normally does with other employees.
7. Banks shall require continuing education for directors: Today the financial services
industry is now facing a number of -challenges. This is mainly because of technology
innovations and competition. Therefore, it becomes imperative for banks to educate
their directors to meet the growing needs of the industry. Continuing education should
be given equal importance along with other parameters.
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8. Banks shall establish procedures for board succession : The presence of qualified
members on the board is very crucial issue. So a bank should have clearly specified
regarding issues of succession to the board.
9. Banks shall disclose, disclose and disclose information: Today it is very necessary for
banks to make disclosures. They will find that the disclosure will burdensome than it was
in past. This may be through quarterly letters to the shareholders or other types of
communication.
10. Banks shall recognize that the duty is to establish corporate governance procedures that
will serve to enhance shareholder value: The primary objective of the board of directors
is to maximize the shareholders’ wealth. The strategy adopted to achieve this objective
should now encompass corporate governance procedures and should be designed with
long-term value for the shareholders in focus are designed with long-term value for the
shareholders in focus
Basel Committee
The Basel Committee on Banking Supervision is a committee, of banking supervisory
authorities, established by the Central Bank Governors of the G10 developed countries in 1975.
The committee in 1988 introduced the Concept of Capital Adequacy Framework, known as
Basel Capital Accord, with a minimum capital adequacy of 8 percent. This accord has been
gradually adopted not only in member countries but also in more than one hundred other
countries, including India.
Basel II: The New Basel Capital Accord
The committee issued a consultative document titled “the New Basel Capital Accord”, in April
2003, to replace the 1988 Accord, which re-enforces the need for capital adequacy requirements
under the current conditions. This accord is commonly known as Basel II and is currently under
finalization. Basel II will be applied on a consolidated basis to internationally active banks.
However, supervisors are required to test that individual banks are adequately capitalized on a
stand-alone basis also.
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Basel II is based on three Pillars.
Pillar 1 – Minimum Capital Requirements.
Pillar 2 – Supervisory Review Process.
Pillar 3 – Market Discipline.
Pillar 1 discusses the calculation of the total minimum capital requirements for credit, market
and operational risks and maintains the level of minimum capital adequacy of 8 percent.
Pillar 2 talks about the key principles of supervisory review, risk management guidance and
supervisory transparency and accountability with respect to banking risk.
Pillar 3 complements Pillar 1 and 2 by encouraging market discipline through enhanced
disclosures by banks to enable market participants assess the capital adequacy of banks.
The Basel Committee has issued, in August 1999, a guidance paper titled “Enhancing Corporate
Governance for Banking Organizations” to all supervisory authorities throughout the world in
order to help them in promoting the acceptance of sound corporate governance by banks in their
countries.
The Basel Committee Recommendations
The Basel Committee published a paper for banking organizations in September 1999. The
Committee suggested that it is the responsibility of the banking supervisors to ensure that there is
effective corporate governance in the banking industry. It also highlighted the need for having
appropriate accountability and checks and balances within each bank to ensure sound corporate
governance, which in turn would lead to effective and more meaningful supervision.
Efforts were taken for several years to remedy the deficiencies of Basel I norm and Basel
committee came out with modified approach in June 2004. The final version of the Accord titled
“International Convergence of Capital Measurement and Capital Standards-A- Revised
Framework" was released by BIS. This is popularly known as New Basel Accord of simply
Basel ll. Base ll seeks to rectify most of the defects of Basel l Accord. The objectives of Basel ll
are the following
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1. To promote adequate capitalization of banks.
2. To ensure better risk management and
3. To strengthen the stability of banking system.
Essentials of Accord of Basel ll
• Capital Adequacy: Basel ll intends to replace the existing approach by a system that would
use external credit assessments for determining risk weights. It is intended that such an approach
will also apply either directly or indirectly and in varying degrees to the risk weighting of
exposure of banks to corporate and securities firms. The result will be reduced risk weights for
high quality corporate credits and introduction of more than 100% risk weight for low quality
exposures.
• Risk Based Supervision This ensures that a bank's capital position is consistent with overall
risk profile and strategy thus encouraging early supervisory intervention. The new framework
lays accent on bank managements developing internal assessment processes and setting targets
for capital that are commensurate with bank' particular risk profile and control environment. This
internal assessment then would be subjected to supervisory review and intervention by RBI.
• Market Disclosures The strategy of market disclosure will encourage high disclosure
standards and enhance the role of market participants in encouraging banks to hold and maintain
adequate capital.
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12. CORPORATE GOVERNANCE OF HDFC BANK
HDFC Bank recognizes the importance of good corporate governance,
Which is generally accepted as a key factor in attaining fairness for all stakeholders and
achieving organizational efficiency? This Corporate Governance Policy, therefore, is established
to provide a direction and framework for managing and monitoring the bank in accordance with
the principles of good corporate governance
Code of Corporate Governance
The Bank believes in adopting and adhering to best recognised corporate governance practices and
continuously benchmarking itself against each such practice. The Bank understands and respects its
fiduciary role and responsibility to shareholders and strives hard to meet their expectations. The Bank
believes that best board practices, transparent disclosures and shareholder empowerment are
necessary for creating shareholder value.
The Bank has infused the philosophy of corporate governance into all its activities. The philosophy
on corporate governance is an important tool for shareholder protection and maximisation of their
long term values. The cardinal principles such as independence, accountability, responsibility,
transparency, fair and timely disclosures, credibility etc. serve as the means for implementing the
philosophy of corporate governance in letter and spirit.
CompositionoftheBoard
The Composition of the Board of Directors of the Bank is governed by the Companies Act, 1956, the
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Banking Regulation Act, 1949 and the listing requirements of the Indian Stock Exchanges where
securities issued by the Bank are listed. The Board has strength of 12 Directors as on March 31, 2008.
All Directors other than Mr. Aditya Puri, Mr. Harish Engineer and Mr. Paresh Sukthankar are non-
executive directors. The Bank has five independent directors and six non-independent directors. The
Board consists of eminent persons with considerable professional expertise and experience in
banking, finance, agriculture, small scale industries and other related fields.
None of the Directors on the Board is a member of more than 10 Committees and Chairman of
more than 5 Committees across all the companies in which he/she is a Director. All the
Directors have made necessary disclosures regarding Committee positions occupied by them in
other companies.
Mr. Jagdish Capoor, Mr. Keki Mistry, Mrs. Renu Karnad, Mr. Aditya Puri, Mr. Harish
Engineer and Mr. Paresh Sukthankar are non-independent Directors on the Board.
Mr. Arvind Pande, Mr. Ashim Samanta, Mr. Gautam Divan, Mr. C. M. Vasudev and Dr. Pandit
Palande are independent directors on the Board.
Mr. Keki Mistry and Mrs. Renu Karnad represent HDFC Limited on the Board of the Bank.
The Bank has not entered into any materially significant transactions during the year, which
could have a potential conflict of interest between the Bank and its promoters, directors,
management and/or their relatives, etc. other than the transactions entered into in the normal
course of business. The Senior Management have made disclosures to the Board confirming
that there are no material, financial and/or commercial transactions between them and the Bank
which could have potential conflict of interest with the Bank at large.
BoardCommittees
The Board has constituted committees of Directors to take informed decisions in the best
interest of the Bank. These committees monitor the activities falling within their terms of
reference. Various committees of the Board were reconstituted during the year due to induction
of additional Director namely; Mr. Pandit Palande.
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The Board's Committees are as follows:
Audit and Compliance Committee
Compensation Committee
Investors' Grievance (SHARE) Committee
Risk Monitoring Committee
Credit Approval Committee
The Premises Committee
Nomination Committee
Fraud Monitoring Committee
Customer Service Committee
i. Audit and Compliance Committee
The Audit and Compliance Committee of the Bank is chaired by Mr. Arvind Pande. The
other members of the Committee are Mr. Ashim Samanta, Mr. C. M. Vasudev, Mr.
Gautam Divan and Dr. Pandit Palande. Dr. Pandit Palande was inducted as member of
the Committee. All the members of the Committee are independent directors and Mr.
Gautam Divan is a financial expert.
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The Committee met 7 (seven) times during the year.
ii. Compensation Committee
The Compensation Committee reviews the overall compensation structure and policies of
the Bank with a view to attract, retain and motivate employees, consider grant of stock
options to employees, reviewing compensation levels of the Bank's employees vis-à-vis
other banks and industry in general.
The Bank's compensation policy is to provide a fair and consistent basis for motivating
and rewarding employees appropriately according to their job / role size, performance,
contribution, skill and competence.
Mr. Jagdish Capoor, Mr. Ashim Samanta, Mr. Gautam Divan and Dr. Pandit Palande are
the members of the Committee. Dr. Pandit Palande was inducted as member of the
Committee. The Committee is chaired by Mr. Jagdish Capoor. All members of the
Committee other than Mr. Capoor are independent directors.
The Committee met 3 (three) times during the year.
iii. Investors' Grievance (SHARE) Committee
The Committee approves and monitors transfer, transmission, splitting and consolidation
of shares and bonds and allotment of shares to the employees pursuant to Employees
Stock Option Scheme. The Committee also monitors redressal of complaints from
shareholders relating to transfer of shares, non-receipt of Annual Report, dividends etc.
The Committee consists of Mr. Jagdish Capoor, Mr. Aditya Puri and Mr. Gautam Divan.
The Committee is chaired by Mr. Capoor. The Committee met 11 times during the year.
The powers to approve share transfers and dematerialization requests have been
delegated to executives of the Bank to avoid delays that may arise due to non-availability
of the members of the Committee.
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As on March 31, 2008, 43 instruments of transfer representing 3871 shares were pending
and since then the same have been processed. The details of the transfers are reported to
the Board of Directors from time to time.
During the year, the Bank received 142 complaints from shareholders, which have been
attended to.
The Committee met 11 (eleven) times during the year.
iv. Risk Monitoring Committee
The committee has been formed as per the guidelines of Reserve Bank of India on the
Asset Liability Management / Risk Management Systems. The Committee develops
Bank's credit and market risk policies and procedures, verify adherence to various risk
parameters and prudential limits for treasury operations and reviews its risk monitoring
system. The committee also ensures that the Bank's credit exposure to any one group or
industry does not exceed the internally set limits and that the risk is prudentially
diversified.
The Committee consists of Mrs. Renu Karnad, Mr. Aditya Puri and Mr. C. M. Vasudev
and is chaired by Mrs. Renu Karnad.
The Committee met 5 (five) times during the year.
v. Credit Approval Committee
The Credit Approval Committee approves credit exposures, which are beyond the powers
delegated to executives of the Bank. This facilitates quick response to the needs of the
customers and speedy disbursement of loans.
The Committee consists of Mr. Jagdish Capoor, Mr. Aditya Puri, Mr. Keki Mistry and
Mr. Gautam Divan. The Committee is chaired by Mr. Capoor.
The Committee met 2 (two) times during the year.
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vi. The Premises Committee
The Premises Committee approves purchases and leasing of premises for the use of
Bank's branches, back offices, ATMs and residence of executives in accordance with the
guidelines laid down by the Board. The committee consists of Mr. Aditya Puri, Mr.
Ashim Samanta, Mrs. Renu Karnad and Dr. Pandit Palande. Dr. Pandit Palande was
inducted as member of the Committee w. The Committee is chaired by Mrs. Renu
Karnad.
The Committee met 4 (four) times during the year.
vii. Nomination Committee
The Bank has constituted a Nomination Committee for recommending the appointment
of independent / non-executive directors on the Board of the Bank. The Nomination
Committee scrutinizes the nominations for independent / non-executive directors with
reference to their qualifications and experience. For identifying ‘fit and proper' persons,
the Committee adopts the following criteria to assess competency of the persons
nominated:
Academic qualifications, previous experience, track record, and
Integrity of the candidates.
For assessing the integrity and suitability, features like criminal records, financial
position, civil actions undertaken to pursue personal debts, refusal of admission to and
expulsion from professional bodies, sanctions applied by regulators or similar bodies and
previous questionable business practice are considered.
The members of the Committee are Mr. Arvind Pande, Mr. Ashim Samanta and Dr.
Pandit Palande. Dr. Pandit Palande was inducted as member of the Committee. The
Committee is chaired by Mr. Arvind Pande. All the members of the Committee are
independent directors.
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The Committee met 2 (two) times during the year.
viii. FraudMonitoringCommittee
Pursuant to the directions of the Reserve Bank of India, the Bank has constituted a Fraud
Monitoring Committee, exclusively dedicated to the monitoring and following up of
cases of fraud amounting to Rs.1 crore and above. The objective of this Committee is the
effective detection of frauds and immediate reporting thereof to regulatory and
enforcement agencies and actions taken against the perpetrators of frauds.
The terms of reference of the Committee are as under:
Identify the systemic lacunae, if any that facilitated perpetration of the fraud and put in
place measures to plug the same.
Identify the reasons for delay in detection, if any, reporting to top management of the
Bank and RBI.
Monitor progress of CBI / police investigation and recovery position.
Ensure that staff accountability is examined at all levels in all the cases of
Frauds and staff side action, if required, is completed quickly without loss of time.
Review the efficacy of the remedial action taken to prevent recurrence of frauds,
such as strengthening of internal controls.
Put in place other measures as may be considered relevant to strengthen
preventive measures against frauds.
The members of the Committee are Mr. Jagdish Capoor, Mr. Aditya Puri, Mr. Keki
Mistry and Mr. Arvind Pande. The Committee is chaired by Mr. Jagdish Capoor.
The Committee met 4 (four) times during the year.
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ix. Customer Service Committee
The Committee monitors the quality of services rendered to the customers and also
ensures implementation of directives received from RBI in this regard. The terms of
reference of the Committee are to formulate comprehensive deposit policy incorporating
the issues arising out of death of a depositor for operations of his account, the product
approval process, and the annual survey of depositor satisfaction and the triennial audit of
such services.
The members of the Committee are Mr. Keki Mistry, Mr. Arvind Pande and Dr. Pandit
Palande. Dr. Pandit Palande was inducted as memberoftheCommittee.
The Committee met 4 (four) times during the year.
Grievance Redressal Mechanism
In case of any complaint/grievance, the applicant/borrowers may contact the following:
Address: Grievance Redressal Cell
HDFC Bank Ltd.
Old Bldg. ,"C" Wing, 3rdFloor,
26-A Narayan Properties,
Chandivali Farm Road,
Off Saki Vihar Road, Chandivali,
Andheri East, Mumbai - 400 072.
Email: [email protected]
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The Bank will acknowledge receipt of such complaint within 3 days, and will ensure that a
response is provided within a period of 15 days.
Disputes arising out of decisions of the bank's functionaries would be disposed of at
the next higher level within the Department concerned or at a central level in the bank.
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13. Conclusions
Good corporate governance is the blood that fills the veins of transparent corporate disclosures
and high quality accounting practices. Strong corporate governance is thus indispensable and
vibrant and it is an important instrument for investor protection. Risk management in banks has
also been a prime focus to enhance corporate governance.
In this sense, corporate governance players should comply with codes to the overall good of all
constituents. Another important focus is economic efficiency, both within the corporation (such
as the best practice guidelines) as well as externally (national institutional frameworks).
RBI is also interacting closely with the Government and the SEBI in this regard. Increasing
regulatory comfort in regard to standards of governance in banks gives greater confidence to
shift from external regulation to internal systems of controls and risk-management.
Each of the directors of the banks has a role in continually enhancing the standards of
governance in banks through a combination of appropriate knowledge and values. Thus, the
bankers and regulators should work together while conducting the operations of the banks to
achieve best results.
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Bibliography
www.yahoosearch.com
www.google.com
www.answers.com
www.rbi.org
www.sebi.com
www.hdfcbank.com
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